Telecom Egypt Full-Year Net Drops 13% as Expenses Increase

Telecom Egypt (ETEL), the country’s
monopoly fixed-line phone operator, said 2012 profit retreated
13 percent as expenses rose and more customers gave up their
traditional fixed-lines.

Net income decreased to 2.61 billion Egyptian pounds
($386.3 million) from 2.99 billion pounds a year earlier, the
Cairo-based company said today in a statement posted on its
website. That compares with the 2.66 billion pounds average of
12 analyst estimates compiled by Bloomberg. Revenue rose 1.6
percent to 10 billion pounds.

“Mobile substitution is not a new phenomenon,” said Chief
Executive Officer Mohamed Amin El-Nawawy. “As anticipated, it
continues to pressure our retail voice and access business.
However, the growth in broadband revenues from our subsidiary TE
Data is offsetting the decline of traditional voice only
services.”

Telecom Egypt, which is 80 percent-owned by the government,
saw its profitability slump for the second year following the
start of the country’s 2011 uprising. The company said its
earnings before interest, taxes, depreciation and amortization
declined 19 percent from a year earlier because of higher costs,
including salary increases.

The number of fixed-line customers fell to 7.3 million
compared with 8.4 million a year earlier. The company expects
broadband revenue to offset the fixed-line decline by 2014, El-
Nawawy said.

Telecom Egypt shares have fallen 4.1 percent in the year to
date compared with a 1 percent drop in the benchmark EGX 30
Index. (EGX30)

Mobile Stake

The company expects to be awarded a mobile phone license by
June which shouldn’t be affected by its 45 percent stake in
Vodafone Egypt, El-Nawawy said by phone.

“To launch mobile services, the law doesn’t require us to
divest,” he said. “We may only have to remove our seats on the
board.”

The Egyptian government is planning to allow its four
telecommunications providers to offer mobile, fixed-line and
broadband services under a single license. This would enable the
Egyptian Co. for Mobile Services, or Mobinil, Vodafone Egypt and
Etisalat Misr to offer land-line services, while Telecom Egypt
offers mobile services.

A decision is expected this year after a September
arbitration hearing on a 1.2 billion pound ($177 million) claim
involving two of the incumbent mobile phone operators, El-Nawawy
said. Telecom Egypt claims that competitor Mobinil paid lower
interconnection rates to Vodafone Egypt.

Mobinil, meanwhile, signed a three-year agreement in the
third quarter of 2012 to use Telecom Egypt’s infrastructure,
Telecom Egypt said. The interconnection fees were backdated to
the beginning of the year, which also contributed to higher
costs in 2012, the company said in its earnings statement today.